Beyond the crowded AI trade, smart money sees opportunity in overlooked sectors. These include healthcare, which is at a 30-year low in relative valuation, and companies serving the middle-income consumer, a segment poised to benefit from upcoming tax reforms.
David Kostin argues public AI stocks aren't in a bubble because earnings growth has matched price increases. The real bubble is in private markets, driven by George Soros's "reflexivity" theory, where a recursive loop of new capital inflates valuations to unsustainable levels.
Over the past two decades, equity analysis has evolved beyond simply valuing a company's physical or financial assets. The modern approach focuses on identifying "alpha" factors—trading baskets of stocks grouped by shared characteristics like strong balance sheets or non-US revenue exposure.
Active managers are struggling against the S&P 500 not just from bad picks, but because the market is dominated by a few AI stocks they can't fully concentrate in. Many also became too defensive during April's volatility, causing them to miss the subsequent sharp market rebound.
For early-career professionals, success isn't just about task mastery. It's about understanding how your specific role contributes to the firm's broader commercial engine. This holistic view allows you to spot opportunities and develop a unique, value-added perspective on solving client problems.
Goldman Sachs forecasts low long-term S&P 500 returns (3-6.5% annually). The key reason is that today's high market concentration implies higher future volatility, yet investors aren't being compensated for this risk because current valuations are already historically high and likely to contract.